10B or not 10B, that is the question

A programming blunder in its reporting software has led to Citigroup being fined $7m (£5m).

According to the US Securities and Exchange Commission (SEC), that error [PDF] resulted in the financial regulator being sent incomplete "blue sheet" information for a remarkable 15 years – from May 1999 to April 2014.

The mistake was discovered by Citigroup itself when it was asked to send a large but precise chunk of trading data to the SEC in April 2014 and asked its technical support team to help identify which internal ID numbers they should run a request on.

That team quickly noticed that some branches' trades were not being included in the automated system and alerted those above them. Four days later a patch was in place, but it wasn't until eight months later that the company received a formal report noting that the error had affected SEC reports going back more than a decade. The next month, January 2015, Citigroup fessed up to the SEC.

The error

It turned out that the error was a result of how the company introduced new alphanumeric branch codes.

When the system was introduced in the mid-1990s, the program code filtered out any transactions that were given three-digit branch codes from 089 to 100 and used those prefixes for testing purposes.

But in 1998, the company started using alphanumeric branch codes as it expanded its business. Among them were the codes 10B, 10C and so on, which the system treated as being within the excluded range, and so their transactions were removed from any reports sent to the SEC.

The SEC routinely sends requests to financial institutions asking them to send all details on transactions between specific dates as a way of checking that nothing untoward is going on. The coding error had resulted in Citigroup failing to send information on 26,810 transactions in over 2,300 such requests.

The SEC was not impressed and said in a statement announcing the fine that the "failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations."

"Broker-dealers have a core responsibility to promptly provide the SEC with accurate and complete trading data for us to analyze during enforcement investigations," said Robert Cohen, co-chief of the SEC enforcement division’s market abuse unit. "Citigroup did not live up to that responsibility for an inexcusably long period of time, and it must pay the largest penalty to date for blue sheet violations." ®